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Speeding toward auto industry consolidation

Also on KPMG.com

Global auto executives agree: consolidation of the auto industry is likely to gain speed if the auto industry is to successfully compete against major technology companies racing to dominate the car ecosystem. Original Equipment Manufacturers (OEMs) will need to find the right balance of competition and integration in order to compete with digital players rapidly entering the auto industry.

Other key insights identified in the 19th annual KPMG Global Automotive Executive Survey, a survey of 900 executives in the automobile and technology industry and approximately 2,100 consumers from around the world, include:

74 percent of executives believe the share of vehicles manufactured in Western Europe will be less than 5 percent by 2030, with production moving in large part to Asia.

The majority of executives believe almost 50 percent of brick-and-mortar retailers will close by 2025.

Consumers will prioritise data security in purchase decisions and will expect security to become part of the vehicle standard operating equipment.

Dieter Becker, Global Head of Automotive at KPMG: “The financial strength of the biggest technology companies overshadows the major auto manufacturers. Together, the 50 major auto manufacturers make up only 20 percent of the market capitalisation of the 15 biggest technology companies. In 2010 they made up 40 percent. This clearly shows digital companies are playing in a completely different financial league. Particularly for mass producers, partnership is key if they want to survive against the technology giants. Although premium suppliers are better positioned, they too have recognised the signs, resulting in integrations such as map services or charging stations for electric cars.”

The number of car dealers is likely to decline sharply

Over half of the executives (56 percent) are more or less certain that the number of car dealerships will drop by 30 to 50 percent by 2025. Dieter Becker: “Almost 80 percent of executives are convinced that the only means for dealers to survive is by restructuring into a service factory or a used car hub.”

Says Wayne Pearson, National Leader Automotive Services, KPMG Enterprise, in Australia: “With fewer moving parts, the vehicles of the future will be more software driven than mechanical, which eliminates the need for expensive and specialised servicing. Up until now, sales of alternate fuel vehicles have been stunted for a number of reasons, with legacy issues at the top of the list. Retooling a plant to move from producing ICE vehicles to electric ones is a very costly exercise.

“However global concerns on climate change and the need to reduce CO2 emissions under the Paris Climate Agreement has led to many governments now implementing dates by which emission producing cars must cease to be sold in their countries.

“As electric vehicle servicing intervals can now extend to 100,000km, the dependency of the customer on the dealer network is curtailed, leading to possible forced closures.

“To survive, dealerships must evolve from Transaction Hubs to Experience Hubs, where vehicles will be built at a very personalised level. These Hubs will interact with drivers at every stage of the ownership life cycle and reinvent the concept of customer service. Sales support is no longer enough.

“In Australia, these changes can already be seen, such as car showrooms popping up in major shopping centers, including the Jaguar Landrover dealership at Westfield Bondi Junction in Sydney. These are more akin to the Experience Hubs of the future, where customers can experience both product and brand, combining a shopping mindset which comes with being in a retail complex. Mercedes Benz has also joined the trend, opening Australia’s first Mercedes-Benz Me Café in Melbourne, where the focus is as much on the quality of the coffee as the cars!

There may be fewer dealerships but they will be exciting places to visit!”

In the future, data security will be standard equipment

More than 80 percent of executives are convinced that the use of car and driver data will be the main component of the automobile industry’s future business model. This means that the term ‘standard equipment’ must be redefined: in the opinion of 85 percent of the executives and 75 percent of customers, data and cyber security will be a prerequisite for purchasing a car in the future.

BEVs are not the only way forward

Global auto production will surpass the 100 million mark even before the end of the century. While today 3,000 different models are being produced in more than 700 factories, only 2 percent of these are pure electric vehicles.

Dieter Becker: “Even if we keep hearing about the e-mobility breakthrough: electric cars will not be the only vehicles on the road in the future. In the foreseeable future a variety of different powertrains will continue to co-exist. More than three-quarters of global executives say fuel-cell electric mobility will be the real break-through for electric mobility.”

To read more insights from the 2018 KPMG Global Automotive Executive Survey and to use the interactive tool to filter by country, respondents, and topics, please visit kpmg.com/gaes2018.

About KPMG’s Global Automotive Executive Survey 2018

In this year’s survey we asked a total of 3000 respondents our questions, of whom 900 are automotive executives – more than half are C-level executives or CEOs, Presidents or Chairpeople. Around one third of the respondents are based in Western and Eastern Europe, while 15 percent come from China and also each 13 percent from North and South America. 16 percent of the executives are located in India & ASEAN and 12 percent in Mature Asia.

The respondents represent companies of all parts of the automotive value chain including vehicle manufacturers, Tier 1, 2 and 3 suppliers, dealers, financial services providers, mobility service providers and for the first time also ICT companies. More than 70 percent of all participants act in companies with annual revenues greater than US$1 billion, of whom almost 70 percent even have revenues of more than US$10 billion. The survey was conducted online and took place between July and November 2017.

Also, 2,100 customers from around the world, all ages and educational backgrounds were interviewed to give us insights and their valuable perspectives and opinions.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.